Unethical Behaviour in Procurement:
A Perspective on Causes and Solutions
ABSTRACT. Enterprise management often encourages their
marketing personnel to offer gifts to purchasers of clients
but won't allow the purchasers of the company to accept
gifts. This double standards create an atmosphere of dis-
honesty in the company.
When considering that purchasers fulfilling the procure-
ment function for a company are the major spenders of
company funds, and that purchasers are frequently tempted
to accept gifts and prevailing double standards within the
company, it is no wonder that they sometimes succumb to
unethical behaviour. The purchasing environment thus
creates an atmosphere conducive to unethical behaviour.
However, the cause of unethical behaviour is not neces-
sarily the individual's lack of moral standards. Research has
shown that the actions of managers, the ethical climate in
the enterprise and the absence of a company policy on the
matter are all contributing factors towards unethical behav-
iour. Unethical behaviour of purchasers and other personnel
involved in procurement can therefore be prevented or
limited by implementing certain measures.
This article focuses on ethics, procurement or purchasing
ethics, and unethical behaviour among purchasers in general,
as well as more specifically on the situation in South Africa,
and makes recommendations for establishing codes of con-
duct, other procedures and policies for improving the
situation of the purchaser in the enterprise.
1. Introduction
W h e n it is taken into account that purchasers are the
Dr Badenhorst is presently associate-professor, in purchasing and
Materials Management at the University of South Africa. She
made contributions to a wide range of journals regarding
marketing, management, development and public administration.
She also presented scientific papers at various international and
national conferences. She was also instrumental in starting (and
manages) the first (and only) Certificate in Purchasing Manage-
ment course in South Africa.
Journal ofBusinessEthics 13: 739--745, I994.
1994 KIuwerAcademicPublishers.Printedin the Netherlands.
j. A. Badenhorst
major spenders of company funds (see Table I), and
that purchasers are often tempted by suppliers and
that double standards which creates an atmosphere
of dishonesty, prevail in the compa W (marketers of
the company may tempt purchasers of dients, but it
is not acceptable for the company's purchasers to
succumb to temptations), it is probably unavoidable
that purchasers are sometimes guilty of unethical
behaviour.
The purchasing fraternity is one of low prestige
both within the company and in general. This low
prestige within companies is due to the fbllowing
(Hill, 1975: 18-22):
- top management does not have a comprehen-
sive understanding of the income-generating
possibilities of the purchasing function;
- management regards purchasing in general
merely as a means of effecting price reduc-
tions;
- the purchasing department is often not in-
volved in or informed about the company's
aims, policy, new plans and programmes;
- the position of authority of the purchasing
department is vague and is often subordinate
to the functions of finance, marketing and
production;
-company management does not appoint
competent and trained persons who are ap-
propriately remunerated in the purchasing
department; and
- purchasers are regarded as "paper pushers" or
"ordering clerks", and the purchasing task is
regarded as suitable for "the sick, lame and
lazy".
This low status of the purchasing function in com-
panies may be a possible cause of unethical behav-
lout.
740 J. A. Badenhorst

TABLE I
A comparison of purchasing cost with other cost items in absolute amounts (R million) and as a percentage of turnover for
different sectors in South Africa

Sector Purchasing costs Salaries and wages Inventory

Amount %of Amount %of Amount %of

rnover (t m) turnover (Rm) turnover

Manufacturing:
1960 1,642 59.9 520 19.0 660 24.1
1970 4,400 58.7 1,474 19.6 1,755 23.4
1979 18,639 62.3 4,954 16.6 6,882 23.0
1985 46,720 60.2 14,377 18.5 14,229 18.3

Mining:
1970 401 23.3 390 22.6 -- --
1981 3,380 22.4 2,657 17.6 -- --
1984 4,924 25.9 4,129 21.7 -- --

Wholesalers:
1961 2,002 85.1 143 6.1 394 16.8
1971 4,812 81.8 385 6.5 1,150 19.6
1977 13,692 81.9 956 5.7 2,286 13.2
1987 n.a. n.a. 3,182 7.8 9,176 12.9

Retailers:
1961 1,194 77.2 84 7.0 290 18.8
1971 3,020 80.1 378 10.1 613 16.3
1977 6,811 76.7 379 9.7 1,530 18.0
1987 n.a. n.a. 3,015 7.6 4,972 12.1

Hugo and Van Rooyen 1990:14

The low status of the purchasing profession,
particularly among the public, may among other
things be ascribed to rumours of unethical behaviour
and bribery by purchasers. This, together with the
effect of sensational reporting by the media, damages
the image of the profession in general. Unethical
behaviour in the purchasing profession is sometimes
regarded as "more unethical", possibly because quite
often larger amounts of money are involved, as well
as usually the personal enrichment of the individual.
Unethical business practices do, however, occur in
other areas on a daily" basis, but as these are often
given less prominence in the media, they are more
quickly forgiven and forgotten by the business world
and by society. There are, for example, business
people who regard unsafe working conditions, poor
products which may cause injury and death, lies,
trampling upon their colleagues and competitors,
and polluting the environment as acceptable busi-
ness practices, as long as this will place them or their
companies in a better position.
In a predominantly Christian country such as
South Africa), 1 the maintenance of high moral values
and ethical standards with regard to personal behav-
iour is seldom doubted. Theft, fraud and lies, for
example, are blatantly unethical patterns of behav-
iour condemned from all sides. There is, however,
not the same agreement with regard to other, less
apparent, doubtful patterns of behaviour which
often occur in business life. What may be disap-
proved of at a personal level, is often disregarded at a
business level, and even accepted without comment.
This is often regarded as "clever business". All that
matters is that the company makes the maximum
profit (Hugo et al., 1986: 37). "Businesspeople feel
pressured to compromise their personal standards to
 Unethical Behaviour: Causes and Solutions
achieve the goals of the organisation" (Dubinsky and
Gwin, 1981: 10). Studies have often shown that indi-
viduals with strong personal moral and ethical values
do not maintain the same values in the business
community (Reilly and Kyj, 1992: 4).
It thus appears that there are two types of
unethical behaviour in the business world: unethical
behaviour which favours the company, and unethi-
cal behaviour for the sake of personal advantage.
From the above discussion it appears that the former
type of unethical behaviour is regarded as more
acceptable or as "less unethical" in the business
world.
It appears from an increasing number of publica-
tions on ethical matters which have seen the light
both in South Africa and internationally during the
past decade, that unethical practices are on the
increase, and that the importance of ethical behav-
iour is widely recognised. O'Brien (1981: 1) main-
tains that stricter ethical codes of behaviour should
be applied in business to maintain a civilised and
developed way of life, and that this is essential for
the survival of western civitisation. Mr. Peter Wrigh-
ton, chairman of the Premier Group, thinks that
South African businesspeople will urgently have to
convey their commitment to high ethical standards
if they wish to encourage foreign investment and
trade (Sake-Bed& 1992: 1).
When thinking of the ethical aspects of purchas-
ing management, bribery and gifts immediately
come to mind (Bayles, 1983: 42). Ethical behaviour
in the purchasing situation involves much more,
however. In this paper, the focus will be on the
definition of purchasing ethics, the most common
areas of unethical behaviour in the procurement
process, the possible causes of unethical behaviour,
the situation in South Africa, and possible measures
to improve ethical behaviour.
2. Ethics and procurement ethics
Ethics may be defined as the basic principles of
correct behaviour, especially with reference to a
specific person, profession of activity (Thomas, 1984:
90). The person, profession or activity in the context
of this article is the purchaser, the purchasing profes-
sion or purchasing function.
Ethical norms and standards in the business world
741
and in purchasing management are an issue on
which points of view diverge. Various ethical stand-
ards apply to different individuals, industries, corn-
panes and cultures. Ethics are basically personal, and
thus have to do with the behaviour of individuals.
However, individual behaviour is influenced by the
norms of the environment and the peer group to
which a person belongs.
Ethics is the science of behaviour, in the context
of conscious and deliberate action to attain a goal.
Purchasing ethics is based on principles according to
which people act out of habit in the business world,
and may be regarded as an extension of trade prac-
tices and rules which businesspeople in a society
regard as important m maintain good relationships
(Lysons, 1989: 271). Unethical behaviour by pur-
chasers may damage relations within the purchasing
department, the relationship with other departments
in the company', and with suppliers.
The purchasing environment creates a climate
which promotes unethical behaviour. In the pur-
chasing process, the purchaser and the seller are in
interaction with one another, and each attempts to
gain the greatest advantage for his company. Every
weapon is then employed to gain an advantage.
Often sales representatives have little concern for
ethical behaviour, and purchasers are tempted to
obtain some personal gain from a transaction, often
with the approval of the representative's employer.
The management often encourages its sales repre-
sentatives to act in a manner which they would find
entirely unacceptable in their purchasing depart-
ments. These double standards create a climate of
dishonesty in a company, and tempt everyone, espe-
cially the purchaser.
In the purchasing situation, the purchaser and the
seller pitch their strength against each other. The
stronger party usualty obtains the greater advantage.
When the purchaser accepts favours, gifts or money,
he gives up his position of strength to the seller. This
might become a vicious circle which cannot be
stopped (Gorham, 1984: 28). In other words: tf a sales
representative attempts to influence a purchaser with
favours, gifts or money, he reveals his weak position.
Unethical behaviour among purchasers thus often
begins with the supplier.
Apart from direct bribery, favours and gifts, there
are also other areas in which the purchaser may be
guilty of unethical behaviour.
742 J. A. Badenhom

3. Areas o f unethical behaviour by or from sales representatives must be treated as

purchasers confidential. It is unethical to make informa-
tion about the activities, prices and abilities of
A dishonest person in the purchasing department is suppliers known to competing suppliers.
in a position to demand or to receive personal
The purchaser is in a position to act unethically in
enrichment or other personal advantages in return
less subtle ways which border on blatant fraud, often
for granting a purchasing contract or placing an
in cooperation with personnel of the suppliers, for
order, or for preferential treatment from the sup-
example:
plier.
Personal advantages include, for example, gifts * The payment of fictive orders and invoices
(both material arid non-material), money in the form * Double payment of invoices
of kick-backs, and even bribes. There are, however, * The removal of information from computer
other more subtle areas where the purchaser may act records
unethically either consciously or subconsciously * Dishonesty with tenders, eg. making informa-
(Bayles, 1983: 42--47): tion known to a certain supplier so that he may
submit the lowest tender
* A purchaser (or his family or friends) may, for * Retaining credit notes for returned goods
example, have an invested interest in a supplier, * Purchasing larger amounts than needed, thus
and the purchaser may place his own interests earning a kickback
above of those of his employer. Under such * Knowingly purchasing products of poor, unus-
circumstances, the purchaser is unable to act able quality from a favoured supplier (Lysons,
rationally, because there is a conflict of interests. 1989: 271).
* The loyalty of a purchaser towards his supe-
It is clear from the above discussion that unethical
riors may give rise to the purchaser acting
behaviour among purchasers often goes together
unethically by not reporting dishonest behav-
with direct or indirect personal gain. Personal gain is,
iour on the part of his superior.
however, only a symptom, and it is necessary to
* The purchasing power of a company may also
determine the possible causes or the source of
be misused if an employer places orders for
unethical behaviour.
himself, his friends or his colleagues in the
name of company, in order to obtain products
at lower prices. Sometimes this is not regarded
4. Possible causes o f unethical behaviour
as unethical behaviour, because company policy
can make provision for it as a benefit to its
4.1. General researchfindings
employees. The supplier is also often prepared
to supply the product to the purchaser person-
It is automatically assumed that unethical behaviou
ally at a lower price as a sign of goodwill. What
is the result of a corrupt person who has no valu,
is of importance is that the purchaser's em-
system which indicates right or wrong. Studies hay
ployer and the supplier must be aware of the
shown, however, that unethical and even cunnin
fact that the product purchased is for personal
businesspeople may actually be kind, responsible an
use.
helpful parents and citizens in their private capaciti~
* Keeping important information from a sup-
in the community. Reilly and Kyj (1992: 2) are oftl:
plier may be unethical if it disadvantages the
opinion that the ethical level of behaviour is maiff
supplier in competing for a transaction. It is
determined by:
furthermore unethical to request information
from a supplier if there is no intention to use * The climate (environment) of the organisatioI
this information to take a purchasing decision. * The role of top management, superiors ar
This creates false expectations, wastes the colleagues
supplier's time, and is a form of deception. * The existence of limited (or a shortage c
* Information obtained from written quotations productive resources
 Unethical Behaviour: Causes and Solutions
* The company culture with regard to its "social"
relations
* The intellectual support of the company system
According to Lysons (1989: 271), a study was under-
taken to rank the factors which affect ethical and
unethical behaviour. The results of the study are
given in Table H.
From the table it is clear that the behaviour of an
individual's managers plays an important rote in
ethical as welt as unethical behaviour. The ethical
climate in the industry/company, the behaviour of
colleagues and the absence of company policy also
appear to be important causes of unethical behav-
iour. From the results of this study it appears that
personal financial position is not an important moti-
vation for unethical behaviour. The reason may be
that the respondents receive good salary packages. In
South Africa, purchasers have a low status and con-
sequently poor remuneration (Van der Merwe, 1982).
The personal financial position should thus be a
more important motivation for unethical behaviour.
4.2. Three researchstudies in private companies in South
A)ica
From the results of three independent studies con-
ducted among the suppliers of large company groups
in South Africa, it appears that the determinants of
ethical behaviour identified in Paragraph 4.1 are also
relevant. The studies were undertaken for a major
fuel manufacturing company and its subsidiaries, a
large gold-mining company and subsidiaries, as well
as the only electricity supply company in South
TABLE II
The most important determinants of ethical behaviour
Factors which determine ethical decisions
Factor Rank
Individual's personal behavioural code t.5
Behaviour of company's managers 2.8
Formal company policy 3.8
Behaviourof colleagues 4.0
743
Africa (Hugo et al., i986, Hugo, 1989 and Schoeman,
1991).
The results of these studies indicate that suppliers
are of the opinion that the purchasing departments
of the company groups maintain high ethical stand-
ards. This may be ascribed to the fact that the
company groups have codes of conduct which are
strictly applied throughout the procurement and
other materials functions. Not only are the em-
ployees subjected to the code, but the suppliers are
also informed about it. Thus temptations on the part
of the supplier are also limited. From the results of
these studies it appears that unethical behaviour is
not acceptable to senior purchasing staff, and that
they maintain high ethical standards on a personal
level. There is thus a culture or climate of profes-
sional and ethical behaviour. It was also found that
certain suppliers are riot unfairly advantaged by the
behaviour of the purchasers, particularly as far as
handling tenders and quotations is concerned. There
is thus no question of an intrigue between the pur-
chasers and certain suppliers.
The respondents in this studies were of the
opinion that communication and clarity about the
handling of complaints about unethical behaviour
by suppliers (and punitive measures) can further
contribute to fighting unethical behaviour in the
purchasing situation.
4.3. The caseof a government department
Some time ago (during May 1992), the South African
media were full of a scandal in a state department,
the Department of Development Aid, involving
Factors which determine unethical decisions
Factor ~nk
Behaviour of company's managers 1.9
Ethical climate, in the industry 2.6
Behaviourof colleagues 3.8
Absenceof companypolicy 3.3
Personalfinancialposition 4.1
744
millions of rands. Unethical behaviour, (particularly
in the purchasing area, but not necessarily by pur-
chasers) had been occurring for },ears before coming
to light. The extent and intensity of the unethical
behaviour was of such a nature that the state presi-
dent dissolved the department.
According to the report of the investigators and
media reports, senior personnel displayed unethical
behaviour. It appears furthermore that the unethical
behav%ur and corruption were possibly the result of
poor management, wrong views and a tack of policy
and control systems (Beeld, 1992: 1, 12). The organi-
sational climate encouraged unethical behaviour.
It appears clear from the discussion in Paragraphs
4.1, 4.2 and 4.3 that there are certain critical areas of
unethical behaviour and that certain measures can be
taken to limit or prevent unethical behaviour among
purchasers and other employees.
5. M e a s u r e s f o r t h e p r e v e n t i o n o f u n e t h i c a l
behaviour
From the above discussion it appears that unethical
behaviour among purchasing staff can be counter-
acted by certain measures:
Code of conduct: A written ethical code of conduct is the
first and most effective measure which can be taken
against unethical behaviour. "As one reads with increas-
ing frequency about illegal payoffs and kickbacks in
industry, it becomes obvious that top management must
provide and stress an effective code of ethics to guide the
firm's staff in its day-to-day business dealings." (Trevisan,
1986: 9).
A code of conduct must clearly spell out company
policy as well as guidelines for day-to-day activities.
The ethical code of conduct must, for example,
contain information about the policy with regard to
the accepting of gifts, meals, pleasure outings, the
handling of sales representatives, the handling of
quotations and tenders, the handling of confidential
information, the divulging of information, behav-
iour during negotiation, policy with regard to sup-
pliers in which purchasers or members of the
management have an interest, the use of the com-
pany's purchasing power to purchase products for
personal use, the use of company equipment and
time for personal work, and company policy with
regard to direct purchases made by other depart-
J. A. Badenhorst
ments and managers. Furthermore, the ethical code
of conduct must spell out the punitive measures if
the code should be breached.
Employees in other departments may not be
allowed to enter into any purchasing transactions.
These people are not as well informed and up to the
task of resisting the temptations of unethical sales
representatives. Should other staff be permitted to
purchase, this would weaken control over the pur-
chasing process in the company.
The code of conduct must be made known to
every purchaser, manager and other employees. The
code must be constantly reviewed, and care must be
taken that every member of staff and manager
respects the code. Furthermore, the ethical code
must be handed to every supplier, and suppliers
must be encouraged to report employees who breach
the code. Suppliers must know how the matter will
be handled if unethical behaviour should be re-
ported.
Record-keeping and control measures: Good record sys-
tems and control measures will not only make unethical
behaviour and fraud in the purchasing department more
difficult, but also in all other departments of the organi-
sation. The constant auditing of invoices, prices and price
increases, receiving notes, order forms and requisitions
will discourage further undesirable behaviour.
Managers: The purchasing and materials managers em-
ployed must set an example for the staff in all respects.
Ethical codes of conduct must be applied even more
strictly to managers, and a channel must be created for
reporting unethical behaviour by managers.
General climate: The general climate in the organisation,
and specifically in the purchasing and materials depart-
ment, must be one of openness, trust, honesty and profes-
sionalism. This climate must also prevail in all other
departments and at all other levels of the organisation.
There may be no double standards. What applies to
purchasers must also apply to marketers. Marketers may
thus, for example, not be permitted to influence the
customer's purchasers with gifts, and it is thus also not
permissible for the company's own purchasers to accept
gifts.
Remuneration and recognition: Professional behaviour
can only be expected if the purchasers receive profes-
sional remuneration. Purchasers must receive recognition
for the important task they perform, and for the manner
in which the task is carried out. Fair remuneration, re-
cognition and pride will prevent purchasers from being
tempted.
 Unethical Behaviour: Causes and Solutions
6. C o n c l u s i o n
Unethical behaviour among purchasers is not deter-
mined only by personal moral standards and norms,
but can be encouraged by circumstances within
companies. By establishing certain control measures,
companies can thus discourage and limit unethical
behaviour among purchasers. The most important
step is, however, that purchasers receive recognition
for the important task they must perform.
Note
1 More than 90% of the total population is Christian.
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